AUSTRALIA/UK -Australia is risking a UK-style pensions mis-selling scandal if it goes ahead with current proposals to introduce fund of choice legislation into its A$400bn compulsory superannuation industry.
The proposed legislation, which has been a political football in Australia for the last five years, has come under fire after a new report blasted the poor advice given to fund members by the financial planning community.
“We risk a UK-style mis-selling scandal, but of much greater size and impact,” said senator Nick Sherry, shadow minister for retirement incomes and savings.
“Because unlike the UK, where approximately half of the workforce were in pension funds at the time, Australia has over 90% of the workforce in superannuation funds.”
Graham Dunstan, CEO of the Emergency Services Super in Melbourne agreed, and said that there are huge levels of concern over the quality of advice currently being given.
About 80% of Australian superannuation schemes already offer a choice of investment within the mainly defined contribution (or accumulation) plans and the proposals on the table are set to introduce a choice of fund and fund manager alongside. But, with most individual scheme members unable to make an informed choice, the role of the financial adviser becomes key to the successful implementation of fund of choice. The damning report by the Australian Securities and Investment Commission (ASIC) and the Australian Consumers’ Association (ACA) says the level of advice available is not adequate.
“This is a wake-up call to the financial advisory industry that significant improvements are needed,” said ASIC executive director of consumer protection Peter Kell.
The survey, which demonstrated that over half the advice given was “very poor, poor or borderline”, has fired the debate in the superannuation industry over how best to implement the new legislation.
Warnings of mis-selling have been added to by claims by the opposition, that Senator Helen Coonan, the minister responsible for superannuation, has her “head in the sand”.
“Membership choice does add an extra layer of risk and, in my view, an extra layer of cost which is why the Labor party argues that if you have a member choice you need very tough safeguards and protection in place,” said Sherry.
But Coonan stated that “the FRSA legislation provides an improved regulatory framework for the financial services industry, requiring full disclosure of fees, charges and other costs associated with products.”
Sherry replied: “Senator Helen Coonan must commit the Liberal government to enforcing compliance amongst financial planners and tougher regulation before she moves ahead with her model of so-called choice. To do otherwise will effectively throw Australians with superannuation to the wolves.
“The big four retail banks are licking their lips in anticipation of being able to get into the compulsory 9% superannuation area to charge their fees and their commissions,” added Sherry.
He said the fund management industry and life assurers are not behind the changes.
Dunstan at ESS added that choice of funds is “never going to work” within a system where advice is based on commission.
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